I am always looking to improve the mortgage process, my file checklist grows a little each month, but it is the best way I have found to increase efficiency. In my CE classes I spend most of the class time pointing out ways to avoid problems in a real estate transaction. If you would like a copy of the most recent checklist email me at Patrick.Ritchie@OnQFinancial.com.
I view it as a flight checklist; I don’t want a pilot taking me 30,000 feet in the air without going over every point on their checklist, no matter how many decades of flying experience they may have. In the same regard, I don’t want to take anyone into the mortgage process without the same thorough review. After 15 years of mortgage experience, one thing that has been a constant: surprises come from out of the blue many times
My focus is to eliminate and eradicate surprises, hence my checklist. However, the best laid out plans do not always guarantee perfection, so we always need to be looking out for issues.
Here is a recent scenario you should be aware of because we all hate the pain of mortgage delays or denials. Our business is a zero sum game, the transaction closes or it doesn’t, there is no second place on a transaction. This is my “moving” checklist for credit protection, if you have a client who will doing a temporary move prior to buying a home, this information may save your transaction from calamity:
- Turn in cable equipment if you are switching service providers or just closing out service, even if temporarily until the permanent move, making sure everything is returned to the cable company ASAP is vital. Always get a receipt for documentation, because if you say you turned everything in, and they say you didn’t, the receipt is your saving grace. Put the receipt in a place worthy of keeping $800, which is the estimated value of the three pieces of common cable equipment.
I had a client who forgot to return the telephone modem she received from Cox, which she was not using, but had as part of her plan. I have the phone service as part of my plan, it was free, the monthly cost would be the same whether I accepted the phone line or not. After three days I unplugged the phone because of the amount of telemarketing calls (despite the do not call list), and I imagine this was the experience my client encountered.
She turned in the cable box and internet modem, in fact she took it to a Cox Store personally, but the Cox employee never asked, “where is the third piece of equipment you still have out (telephone modem)?”
She had packed the telephone modem in a box in her closet when she first moved in and did not use the internet phone line, forgot about it, and was not reminded when she turned in the other equipment. 30 days later Cox sent the account to collection for $200 and it knocked her credit score down 80 points. Cable equipment includes:
- Cable box/DVR
- Internet Modem
- Telephone modem/box
The total value of the equipment? Roughly $800, according to the documentation she had returned $600 worth of equipment, but was delinquent $200.
If you read the fine print in the Cox agreement it says: Telephone modem required and will be provided for the duration of phone service subscription. Upon disconnection of phone service, modem must be returned within 30 days or a monthly rental fee or lost equipment charge will apply.
In 30 days Cox will send it to collection, and this will knock down a credit score in dramatic fashion, dropping from 780 to say 700 may not be that big of a deal because the score is still good, just not cream of the crop good. In my scenario we were in the 710 range, an 80 point drop to the FICO score took us down to 630. Ouch! It gets worse. Collections do not show up immediately, this hit the credit report when we were under contract and closing in 20 days.
She paid the collection immediately, but that wasn’t going improve the credit score. I knew exactly what we needed to attempt with such a short timeframe. My quickest Voodoo Credit Magic Trick on addressing the collection works 50% of the time, (disclaimer: Voodoo Credit Magic Tricks are never 100%), but we got shot down, Cox declined her request, we were stuck.
With 20 days to close there wasn’t much choice, we had to press on, she could still close on the transaction as long as she was above a 580 FICO score. If we had more time, there are other tactics she could have tried for removing the collection, but time was not on our side.
Now we had to assess the collateral damage. She was using the Maricopa County Home in 5 down payment assistance program, which was giving her $8,500 toward her down payment and closing costs. However, the minimum FICO score is 640, so now she no longer qualified for the down payment assistance because she was under 640. This really stinks, she forgets to return a telephone modem to Cox, they do not ask for it when she returns the other equipment, there is no phone call to her cell phone, and they claim they did not send a letter asking for payment because she moved and they didn’t have her new mailing address. 30 days after disconnecting service they send the account to collection. Wow. This sequence cost my client $8,500 in assistance money.
She should have requested a statement showing her account closed with a zero balance, this likely would have uncovered the issue, there were opportunities on both sides to avoid this collection.
Always get a paid in full, account closed, you owe nothing type statement or print out to be sure you owe nothing further. Otherwise this type of scenario may occur, this applies to utilities, medical visits, veterinarian, gyms, schools, martial arts lessons, leases, memberships, any type of obligation to pay, triple check it is in the clear when closing it out.
Fortunately she had access to a down payment source in the form of a gift. She closed on the house and is now a homeowner, but not without a wild ride. Not to mention the disappointment of not getting the $8,500 assistance money. The checklist asks a lot of questions, this scenario is now an aspect of it in order to get the communication flowing.
Clients can apply for a mortgage online at http://patrickritchie.onqtempe.com/ or call me any time.
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
NMLS# 276438 AZ#0913109
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